Transfers of financial assets and mortgage servicing assets

12 Months Ended

Dec. 31, 2024

Transfers and Servicing of Financial Assets

Transfers Of Financial Assets And Mortgage Servicing Assets

Note 10 – Transfers of financial assets and mortgage servicing assets

The Corporation typically transfers conforming residential mortgage loans in conjunction with GNMA, FNMA and FHLMC

securitization transactions whereby the loans are exchanged for cash or securities and servicing rights. As seller, the Corporation

has made certain representations and warranties with respect to the originally transferred loans and, in the past, has sold certain

loans with credit recourse to a government-sponsored entity, namely FNMA. Refer to Note 22 to the Consolidated Financial

Statements for a description of such arrangements. 

No

 liabilities were incurred as a result of these securitizations during the years ended December 31, 2024 and 2023 because they

did not contain any credit recourse arrangements. 

The following tables present the initial fair value of the assets obtained as proceeds from residential mortgage loans securitized

during the years ended December 31, 2024 and 2023:

Proceeds Obtained During the Year Ended December 31, 2024

(In thousands)

Level 1

Level 2

Level 3

Initial fair value

Assets

Trading account debt securities:

Mortgage-backed securities - GNMA

$

-

$

6,783

$

-

$

6,783

Mortgage-backed securities - FNMA

-

8,377

-

8,377

Total trading account debt securities

$

-

$

15,160

$

-

$

15,160

Mortgage servicing rights

$

-

$

-

$

302

$

302

Total 

$

-

$

15,160

$

302

$

15,462

Proceeds Obtained During the Year Ended December 31, 2023

(In thousands)

Level 1

Level 2

Level 3

Initial fair value

Assets

Trading account debt securities:

Mortgage-backed securities - GNMA

$

-

$

2,488

$

-

$

2,488

Mortgage-backed securities - FNMA

-

34,857

-

34,857

Total trading account debt securities

$

-

$

37,345

$

-

$

37,345

Mortgage servicing rights

$

-

$

-

$

987

$

987

Total 

$

-

$

37,345

$

987

$

38,332

During the year ended December 31, 2024, the Corporation retained servicing rights on whole loan sales involving approximately

$

44

 million in principal balance outstanding (2023 - $

50

 million), with net realized gains of approximately $

1.1

 million (2023 - $

0.7

million). All loan sales performed during the years ended December 31, 2024 and 2023 were without credit recourse agreements. 

The Corporation recognizes as assets the rights to service loans for others, whether these rights are purchased or result from asset

transfers such as sales and securitizations. These mortgage servicing rights (“MSRs”) are measured at fair value.

The Corporation uses a discounted cash flow model to estimate the fair value of MSRs. The discounted cash flow model

incorporates assumptions that market participants would use in estimating future net servicing income, including estimates of

prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, prepayment and late

fees, among other considerations. Prepayment speeds are adjusted for the loans’ characteristics and portfolio behavior. 

The following table presents the changes in MSRs measured using the fair value method for the years ended December 31, 2024

and 2023.

Residential MSRs

(In thousands)

December 31, 2024

December 31, 2023

Fair value at beginning of period

$

118,109

$

128,350

Additions

1,364

2,097

Changes due to payments on loans

 [1]

(8,739)

(9,934)

Reduction due to loan repurchases

(511)

(606)

Changes in fair value due to changes in valuation model inputs or assumptions

(2,120)

(529)

Other

-

(1,269)

Fair value at end of period

 [2]

$

108,103

$

118,109

[1] Represents changes due to collection / realization of expected cash flows over time.

[2] At December 31, 2024, PB had MSRs amounting to $

1.9

 million (December 31, 2023 - $

1.9

 million).

During the quarter ended June 30, 2023 the Corporation terminated a servicing agreement, in which it acted as sub-servicer for a

third party, for a portfolio with an unpaid principal balance of approximately $

260

 million and a related MSR fair value of

approximately $

2

 million. The transaction did not result in a material effect on the financial results of the Corporation.

Residential mortgage loans serviced for others were $

9.0

 billion at December 31, 2024 (2023 - $

9.9

 billion).

Net mortgage servicing fees, a component of mortgage banking activities in the Consolidated Statements of Operations, include the

changes from period to period in the fair value of the MSRs, including changes due to collection / realization of expected cash flows.

The banking subsidiaries receive servicing fees based on a percentage of the outstanding loan balance. These servicing fees are

credited to income when they are collected. At December 31, 2024, those weighted average mortgage servicing fees were

0.32

%

(2023 –

0.31

%). Under these servicing agreements, the banking subsidiaries do not generally earn significant prepayment penalty

fees on the underlying loans serviced.

The section below includes information on assumptions used in the valuation model of the MSRs, originated and purchased.

Key

economic assumptions used in measuring the servicing rights derived from loans securitized or sold by the Corporation during the

years ended December 31, 2024 and 2023 were as follows:

Years ended

December 31, 2024

December 31, 2023

BPPR

PB

BPPR

PB

Prepayment speed

6.8

%

6.3

%

7.0

%

6.8

%

Weighted average life (in years)

9.4

8.7

9.1

8.3

Discount rate (annual rate)

9.7

%

12.8

%

9.6

%

11.1

%

Key economic assumptions used to estimate the fair value of MSRs derived from sales and securitizations of mortgage loans

performed by the banking subsidiaries and servicing rights purchased from other financial institutions, and the sensitivity to

immediate changes in those assumptions, were as follows as of the end of the periods reported:

Originated MSRs

Purchased MSRs

December 31,

December 31,

December 31,

December 31, 

(In thousands)

2024

2023

2024

2023

Fair value of servicing rights

$

34,019

$

39,757

$

74,084

$

78,352

Weighted average life (in years)

6.4

6.6

6.6

6.8

Weighted average prepayment speed (annual rate)

5.8

%

5.9

%

6.9

%

7.0

%

Impact on fair value of 10% adverse change

$

(667)

$

(696)

$

(1,448)

$

(1,440)

Impact on fair value of 20% adverse change

$

(1,308)

$

(1,365)

$

(2,840)

$

(2,827)

Weighted average discount rate (annual rate)

11.4

%

11.3

%

10.8

%

10.9

%

Impact on fair value of 10% adverse change

$

(1,267)

$

(1,387)

$

(2,689)

$

(2,871)

Impact on fair value of 20% adverse change

$

(2,451)

$

(2,686)

$

(5,211)

$

(5,562)

The sensitivity analyses presented in the table above for servicing rights are hypothetical and should be used with caution. As the

figures indicate, changes in fair value based on a 10 and 20 percent variation in assumptions generally cannot be extrapolated

because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the sensitivity tables

included herein, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without

changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increases in market

interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.

At December 31, 2024, the Corporation serviced $

495

 million (2023 - $

561

 million) in residential mortgage loans with credit recourse

to the Corporation, from which $

12

 million was 60 days or more past due (2023 - $

13

 million). Also refer to Note 22 for information

on changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse.

During the year ended December 31, 2024, the Corporation repurchased approximately $

38

 million of mortgage loans from its

GNMA servicing portfolio (2023 - $

44

 million). The determination to repurchase these loans was based on the economic benefits of

the transaction, which results in a reduction of the servicing costs for these severely delinquent loans, mostly related to principal and

interest advances. The risk associated with the loans is reduced due to their guaranteed nature. The Corporation may place these

loans under modification programs offered by FHA, VA or United States Department of Agriculture (USDA) or other loss mitigation

programs offered by the Corporation, and once brought back to current status, these may be either retained in portfolio or re-sold in

the secondary market.